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Heritage Financial Corp

HERITAGE FINANCIAL ANNOUNCES THIRD QUARTER 2024 RESULTS AND DECLARES REGULAR CASH DIVIDEND OF $0.23 PER SHARE

Third Quarter 2024 Highlights

  • Net income was $11.4 million, or $0.33 per diluted share, compared to $14.2 million, or $0.41 per diluted share, for the second quarter of 2024.
  • Results include a pre-tax loss on sale of securities of $6.9 million, or $0.16 per diluted share on an after-tax basis.
  • Loans receivable increased $146.9 million, or 3.2% (12.9% annualized).
  • Deposits increased $192.8 million, or 3.5% (13.9% annualized).
  • Non-interest bearing deposits increased $82.9 million, or 5.2% (20.6% annualized).
  • Net interest margin was 3.33%, compared to 3.29% for the second quarter of 2024.
  • Cost of total deposits was 1.42%, compared to 1.34% for the second quarter of 2024.
  • Noninterest expense to average total assets was 2.18%, compared to 2.21% for the second quarter of 2024.
  • Declared a regular cash dividend of $0.23 per share on October 23, 2024.

OLYMPIA, Wash. , Oct. 24, 2024 /PRNewswire/ -- Heritage Financial Corporation (Nasdaq GS: HFWA) (the "Company", "we," or "us"), the parent company of Heritage Bank (the "Bank"), today reported net income of $11.4 million for the third quarter of 2024 compared to $14.2 million for the second quarter of 2024 and $18.2 million for the third quarter of 2023. Diluted earnings per share for the third quarter of 2024 were $0.33 compared to $0.41 for the second quarter of 2024 and $0.51 for the third quarter of 2023.

In the third quarter of 2024, the Company incurred a pre-tax loss of $6.9 million on the sale of investment securities due to the  strategic repositioning of its balance sheet, which decreased diluted earnings per share by $0.16 for the quarter. The Company sold $78.0 million of investment securities with an estimated weighted average book yield of 1.88%. Proceeds were used to fund higher yielding loan growth for the quarter.

Jeff Deuel, Chief Executive Officer of the Company, commented, "We are very pleased with our operating results for the third quarter, which included strong loan and deposit growth, margin expansion, and continued benefits from expense management measures.  The increases in average earning assets and net interest margin resulted in an improvement in net interest income of $1.8 million, or 3.6%, from the prior quarter.  Although we experienced a charge-off during the quarter related to an owner-occupied commercial real estate loan previously downgraded to Substandard, we believe our overall credit quality remains very strong.  We are optimistic that the combination of core balance sheet growth and prudent risk management will continue to benefit our core profitability."

Financial Highlights

The following table provides financial highlights at the dates and for the periods indicated:

 

As of or for the Quarter Ended


September 30,
2024


June 30,
2024


September 30,
2023


(Dollars in thousands, except per share amounts)

Net income

$           11,423


$            14,159


$             18,219

Pre-tax, pre-provision income(1)

$           15,505


$            17,263


$             20,919

Diluted earnings per share

$               0.33


$                0.41


$                 0.51

Return on average assets(2)

0.63 %


0.80 %


1.00 %

Pre-tax, pre-provision return on average assets(1)(2)

0.86 %


0.98 %


1.15 %

Return on average common equity(2)

5.30 %


6.75 %


8.80 %

Return on average tangible common equity(1)(2)

7.62 %


9.74 %


12.90 %

Adjusted return on average tangible common equity(1)(2)

10.42 %


10.74 %


13.62 %

Net interest margin(2)

3.33 %


3.29 %


3.47 %

Cost of total deposits(2)

1.42 %


1.34 %


0.83 %

Efficiency ratio

71.7 %


69.4 %


66.2 %

Adjusted efficiency ratio(1)

65.2 %


67.1 %


64.8 %

Noninterest expense to average total assets(2)

2.18 %


2.21 %


2.25 %

Total assets

$     7,153,363


$     7,059,857


$     7,150,588

Loans receivable, net

$     4,628,088


$     4,481,396


$     4,219,911

Total deposits

$     5,708,492


$     5,515,652


$     5,635,187

Loan to deposit ratio(3)

82.0 %


82.2 %


75.7 %

Book value per share

$            25.61


$            24.66


$            23.31

Tangible book value per share(1)

$            18.45


$            17.56


$            16.25



(1)

Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.

(2)

Annualized.

(3)

Loans receivable divided by total deposits.

 

Balance Sheet

Cash and cash equivalents increased $61.8 million, or 54.3%, to $175.6 million at September 30, 2024 from $113.8 million at June 30, 2024 primarily due to an increase in deposits.

Total investment securities decreased $86.4 million, or 5.2%, to $1.57 billion at September 30, 2024 from $1.66 billion at June 30, 2024. As previously noted, the Company sold $78.0 million of investment securities at a pre-tax loss of $6.9 million as part of its strategic balance sheet repositioning. In addition, there were investment maturities and repayments of $43.3 million during the third quarter of 2024. These impacts were offset partially by a $34.7 million decrease in unrealized losses on available for sale securities, due primarily to changes in market rates.

The following table summarizes the composition of the Company's investment securities portfolio at the dates indicated:

 

September 30, 2024


June 30, 2024


Change


Balance


% of

Total


Balance


% of

Total


$


%


(Dollars in thousands)

Investment securities available for sale, at fair value:

U.S. government and agency securities

$         13,054


0.8 %


$         12,474


0.8 %


$           580


4.6 %

Municipal securities

61,263


3.9


69,720


4.2


(8,457)


(12.1)

Residential CMO and MBS(1)

427,048


27.2


446,468


26.9


(19,420)


(4.3)

Commercial CMO and MBS(1)

328,861


20.9


378,768


22.8


(49,907)


(13.2)

Corporate obligations

11,706


0.7


11,384


0.7


322


2.8

Other asset-backed securities

10,847


0.7


12,434


0.7


(1,587)


(12.8)

Total

$       852,779


54.2 %


$       931,248


56.1 %


$     (78,469)


(8.4) %

Investment securities held to maturity, at amortized cost:

U.S. government and agency securities

$       151,181


9.6 %


$       151,146


9.1 %


$             35


— %

Residential CMO and MBS(1)

249,589


15.9


256,742


15.5


(7,153)


(2.8)

Commercial CMO and MBS(1)

318,630


20.3


319,454


19.3


(824)


(0.3)

Total

$       719,400


45.8 %


$       727,342


43.9 %


$       (7,942)


(1.1) %













Total investment securities

$    1,572,179


100.0 %


$    1,658,590


100.0 %


$     (86,411)


(5.2) %



(1)

U.S. government agency and government-sponsored enterprise CMO and MBS

Loans receivable increased $146.9 million, or 3.2%, to $4.68 billion at September 30, 2024 from $4.53 billion at June 30, 2024. New loans funded in the third quarter and second quarter of 2024 totaled $176.9 million and $166.7 million, respectively. Loan prepayments decreased slightly during the third quarter of 2024 to $44.8 million, compared to $48.5 million during the prior quarter.

Commercial and industrial loans increased $44.6 million, or 5.7%, due primarily to new loan production of $76.0 million during the quarter, offset by pay downs on outstanding balances. Owner-occupied commercial real estate ("CRE") loans increased $33.6 million, or 3.5%, due primarily to new loan production of $41.8 million during the third quarter of 2024 offset partially by pay downs on outstanding balances. Non-owner occupied CRE loans increased $76.0 million, or 4.3%, due primarily to new loan production of $44.2 million during the third quarter of 2024 and advances on outstanding commitments.

The following table summarizes the Company's loans receivable, net at the dates indicated:

 

September 30, 2024


June 30, 2024


Change


Balance


% of Total


Balance


% of Total


$


%


(Dollars in thousands)

Commercial business:












Commercial and industrial

$       824,134


17.6 %


$       779,495


17.2 %


$         44,639


5.7 %

Owner-occupied CRE

987,084


21.1


953,518


21.0


33,566


3.5

Non-owner occupied CRE

1,835,609


39.3


1,759,605


38.8


76,004


4.3

Total commercial business

3,646,827


78.0


3,492,618


77.0


154,209


4.4

Residential real estate

408,982


8.7


413,358


9.1


(4,376)


(1.1)

Real estate construction and land development:












Residential

79,325


1.7


80,451


1.8


(1,126)


(1.4)

Commercial and multifamily

378,322


8.1


378,695


8.4


(373)


(0.1)

Total real estate construction and land
development

457,647


9.8


459,146


10.2


(1,499)


(0.3)

Consumer

166,023


3.5


167,493


3.7


(1,470)


(0.9)

Loans receivable

4,679,479


100.0 %


4,532,615


100.0 %


146,864


3.2

Allowance for credit losses on loans

(51,391)




(51,219)




(172)


0.3

Loans receivable, net

$    4,628,088




$    4,481,396




$       146,692


3.3 %

 

Total deposits increased $192.8 million, or 3.5%, to $5.71 billion at September 30, 2024 from $5.52 billion at June 30, 2024. Noninterest bearing demand deposits increased by $82.9 million, or 5.2%, due to new accounts of $30.0 million and an increase in existing deposit balances primarily to business customers. Money market accounts increased $49.9 million primarily due to new accounts of $47.3 million opened during the quarter. Certificates of deposit increased $62.3 million, or 7.1%, to $945.6 million at September 30, 2024 from $883.2 million at June 30, 2024, primarily due to new accounts opened during the quarter. Brokered deposits declined by $10 million.

The following table summarizes the Company's total deposits at the dates indicated:

 

September 30, 2024


June 30, 2024


Change


Balance


% of Total


Balance


% of Total


$


%


(Dollars in thousands)

Noninterest demand deposits

$    1,682,219


29.5 %


$    1,599,367


29.0 %


$         82,852


5.2 %

Interest bearing demand deposits

1,489,316


26.1


1,487,670


27.0


1,646


0.1

Money market accounts

1,148,720


20.1


1,098,821


19.9


49,899


4.5

Savings accounts

442,677


7.8


446,583


8.1


(3,906)


(0.9)

Total non-maturity deposits

4,762,932


83.5


4,632,441


84.0


130,491


2.8

Certificates of deposit

945,560


16.5


883,211


16.0


62,349


7.1

Total deposits

$    5,708,492


100.0 %


$    5,515,652


100.0 %


$       192,840


3.5 %

 

Total borrowings decreased $118.0 million to  $382.0 million at September 30, 2024 from $500.0 million at June 30, 2024 due to pay downs during the quarter. All outstanding borrowings mature within one year.

Total stockholders' equity increased $24.0 million, or 2.8%, to $874.5 million at September 30, 2024 compared to $850.5 million at June 30, 2024 due primarily to a $27.0 million decrease in other comprehensive loss as a result of changes in market rates and $11.4 million of net income recognized for the quarter, partially offset by $8.0 million in dividends paid to common shareholders and $7.5 million in common stock repurchases.

The Company and Bank continued to maintain capital levels in excess of the applicable regulatory requirements for them both to be categorized as "well-capitalized" at September 30, 2024.

The following table summarizes the capital ratios for the Company at the dates indicated:

 

September 30,
2024


June 30,
2024

Stockholders' equity to total assets

12.2 %


12.0 %

Tangible common equity to tangible assets (1)

9.1


8.9

Common equity tier 1 capital ratio (2)

12.3


12.6

Leverage ratio (2)

9.9


10.1

Tier 1 capital ratio (2)

12.7


13.0

Total capital ratio (2)

13.6


13.9



(1) 

Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.

(2)

Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports.

 

Allowance for Credit Losses and Provision for Credit Losses

The allowance for credit losses ("ACL") on loans as a percentage of loans receivable was 1.10% at September 30, 2024 compared to 1.13% at June 30, 2024. During the third quarter of 2024, the Company recorded a $2.7 million provision for credit losses on loans, compared to a $1.5 million provision for credit losses on loans during the second quarter of 2024. The company recorded net charge-offs of $2.5 million during the quarter primarily from one owner-occupied CRE loan that was added to nonaccrual loans during the quarter. This loan was rated Substandard at the time of the charge-off and has been managed by our Special Assets Departments since December 2022.

During the third quarter of 2024, the Company recorded a $266,000 reversal of provision for credit losses on unfunded commitments compared to a $202,000 reversal of provision for credit losses on unfunded commitments during the second quarter of 2024. The reversal of provision for credit losses on unfunded commitments during the third quarter of 2024 was due primarily to a decrease in the unfunded exposure on construction loans.

The following table provides detail on the changes in the ACL on loans and the ACL on unfunded commitments, and the related provision for (reversal of) credit losses for the periods indicated:

 

As of or for the Quarter Ended


September 30, 2024


June 30, 2024


September 30, 2023


ACL on
Loans


ACL on
Unfunded


Total


ACL on
Loans


ACL on
Unfunded


Total


ACL on
Loans


ACL on
Unfunded


Total


(Dollars in thousands)

Balance, beginning of
period

$ 51,219


$          774


$ 51,993


$ 49,736


$          976


$ 50,712


$ 46,408


$      1,777


$ 48,185

Provision for (reversal of)
credit losses

2,705


(266)


2,439


1,470


(202)


1,268


(635)


(243)


(878)

Net recoveries (net
charge-offs)

(2,533)


—


(2,533)


13


—

—

13


1,174


—


1,174

Balance, end of period

$ 51,391


$          508


$ 51,899


$ 51,219


$          774


$ 51,993


$ 46,947


$      1,534


$ 48,481

 

Credit Quality

The percentage of classified loans to loans receivable decreased to 1.5% at September 30, 2024, compared to 1.8% at June 30, 2024. Classified loans include loans rated substandard or worse. The decrease was due primarily to payoffs and principal payments on substandard loans. Total loans designated as special mention increased by $5.4 million to $99.1 million at September 30, 2024, compared to $93.7 million at June 30, 2024.

The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:

 

September 30, 2024


June 30, 2024


Balance


% of
Total


Balance


% of
Total


(Dollars in thousands)

Risk Rating:








Pass

$    4,508,424


96.4 %


$    4,356,425


96.1 %

Special Mention

99,078


2.1


93,694


2.1

Substandard

71,977


1.5


82,496


1.8

Total

$    4,679,479


100.0 %


$    4,532,615


100.0 %

 

Nonaccrual loans to loans receivable were 0.09% and 0.08% at September 30, 2024 and June 30, 2024, respectively. The increase in nonaccrual loans was primarily due to the addition of one owner-occupied CRE loan moving to nonaccrual, a portion of which was charged-off during the quarter.  This increase was partially offset by the payoff of two commercial and industrial loans. Changes in nonaccrual loans during the periods indicated were as follows:

 

Quarter Ended


September 30,
2024


June 30,
2024


September 30,
2023


(Dollars in thousands)

Balance, beginning of period

$               3,826


$               4,792


$               4,630

Additions

4,990


549


440

Net principal payments and transfers to accruing status

(173)


(483)


(81)

Payoffs

(1,832)


(769)


(1,924)

Charge-offs

(2,510)


(263)


—

Balance, end of period

$               4,301


$               3,826


$               3,065

 

Liquidity

Total liquidity sources available at September 30, 2024 were $2.52 billion. This includes on- and off-balance sheet liquidity. The Company has access to Federal Home Loan Bank ("FHLB") advances and the Federal Reserve Bank ("FRB") Discount Window. The Company's available liquidity sources at September 30, 2024 represented a coverage ratio of 44.2% of total deposits and 112.6% of estimated uninsured deposits.

The following table summarizes the Company's available liquidity:

 

Quarter Ended


September 30,
2024


June 30,
2024


(Dollars in thousands)

On-balance sheet liquidity




Cash and cash equivalents

$           175,572


$           113,757

Unencumbered investment securities available for sale (1)

848,224


926,822

Total on-balance sheet liquidity

$        1,023,796


$        1,040,579

Off-balance sheet liquidity




FRB borrowing availability

$           287,739


$           278,632

FHLB borrowing availability (2)

1,068,085


943,492

Fed funds line borrowing availability with correspondent banks

145,000


145,000

Total off-balance sheet liquidity

$        1,500,824


$        1,367,124

Total available liquidity

$        2,524,620


$        2,407,703



(1)

Investment securities available for sale at fair value.

(2)

Includes FHLB total borrowing availability of $1.35 billion at September 30, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.17 billion.

 

Net Interest Income and Net Interest Margin

Net interest income increased $1.8 million, or 3.6%, during the third quarter of 2024 compared to the second quarter of 2024, due primarily to a $3.2 million increase in interest income offset partially by a $1.4 million increase in interest expense. Net interest margin increased four basis points to 3.33% during the third quarter of 2024 from 3.29% during the second quarter of 2024.

The yield on interest earning assets increased 9 basis points to 5.02% for the third quarter of 2024, compared to 4.93% for the second quarter of 2024. The yield on loans receivable, net, increased 8 basis points to 5.60% during the third quarter of 2024 compared to 5.52% during the second quarter of 2024 due primarily to higher rates on new and renewed loans.

The cost of interest bearing deposits increased 13 basis points to 2.02% for the third quarter of 2024 from 1.89% for the second quarter of 2024. This increase was primarily due to an increase in deposit rates during the quarter and an increase in certificate of deposit average balances of $68.5 million which carry higher rates than other interest bearing deposits.

Net interest income decreased $2.7 million, or 4.8%, during the third quarter of 2024 compared to the third quarter of 2023 and the net interest margin decreased 14 basis points to 3.33% from 3.47% during this same period. The decrease was due primarily to an increase in interest expense resulting from increased deposit rates and borrowing expense, partially offset by an increase in yields earned on interest earning assets following increases in market interest rates.

The following table provides relevant net interest income information for the periods indicated:

 

Quarter Ended


September 30, 2024


June 30, 2024


September 30, 2023


Average

Balance


Interest

Earned/

Paid


Average
Yield/
Rate(1)


Average

Balance


Interest

Earned/

Paid


Average
Yield/
Rate(1)


Average

Balance


Interest

Earned/

Paid


Average
Yield/
Rate(1)


(Dollars in thousands)

Interest Earning Assets:


















Loans receivable, net (2)(3)

$ 4,555,090


$ 64,138


5.60 %


$ 4,415,790


$ 60,608


5.52 %


$ 4,201,554


$ 56,119


5.30 %

Taxable securities

1,604,529


13,472


3.34


1,685,795


14,156


3.38


1,931,649


14,590


3.00

Nontaxable securities (3)

17,482


159


3.62


18,812


165


3.53


60,654


448


2.93

Interest earning deposits

150,384


2,048


5.42


121,539


1,653


5.47


169,186


2,310


5.42

Total interest earning assets

6,327,485


79,817


5.02 %


6,241,936


76,582


4.93 %


6,363,043


73,467


4.58 %

Noninterest earning assets

855,436






864,855






849,689





Total assets

$ 7,182,921






$ 7,106,791






$ 7,212,732





Interest Bearing Liabilities:


















Certificates of deposit

$    906,743


$ 10,052


4.41 %


$    838,285


$   9,128


4.38 %


$    553,015


$   4,585


3.29 %

Savings accounts

445,926


220


0.20


453,099


190


0.17


523,882


172


0.13

Interest bearing demand and
money market accounts

2,644,827


9,984


1.50


2,625,593


9,135


1.40


2,764,251


7,120


1.02

Total interest bearing deposits

3,997,496


20,256


2.02


3,916,977


18,453


1.89


3,841,148


11,877


1.23

Junior subordinated debentures

21,946


541


9.81


21,874


539


9.91


21,649


540


9.90

Securities sold under agreement
to repurchase

—


—


—


—


—


—


31,729


38


0.48

Borrowings

452,364


6,062


5.33


500,230


6,477


5.21


451,032


5,394


4.74

Total interest bearing
liabilities

4,471,806


26,859


2.39 %


4,439,081


25,469


2.31 %


4,345,558


17,849


1.63 %

Noninterest demand deposits

1,677,984






1,638,262






1,859,374





Other noninterest bearing
liabilities

175,332






186,010






186,306





Stockholders' equity

857,799






843,438






821,494





Total liabilities and
stockholders' equity

$ 7,182,921






$ 7,106,791






$ 7,212,732





Net interest income and spread



$ 52,958


2.63 %




$ 51,113


2.62 %




$ 55,618


2.95 %

Net interest margin





3.33 %






3.29 %






3.47 %



(1)

Annualized; average balances are calculated using daily balances.

(2)

Average loans receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $938,000, $971,000 and $940,000 for the third quarter of 2024, second quarter of 2024 and third quarter of 2023, respectively.

(3)

Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

 

Noninterest Income

Noninterest income decreased $3.4 million to $1.8 million during the third quarter of 2024 from $5.2 million during the second quarter of 2024. The decrease was due primarily to the increase in loss resulting from the above-referenced sale of investment securities recognized in the third quarter of 2024 as part of the strategic repositioning of the balance sheet, compared to the prior quarter.  The decrease was partially offset by an increase in gain on sale of other assets, net which was due to the $1.5 million gain on sale of an administrative building recognized during the third quarter of 2024.

Noninterest income decreased $4.4 million from the same period in 2023 due primarily to a $6.9 million pre-tax loss on the sale of investment securities during the third quarter of 2024, offset partially by the gain on sale of other assets, net as discussed previously.

The following table presents the key components of noninterest income and the change for the periods indicated:

 

Quarter Ended


Quarter Over
Quarter Change


Prior Year

Quarter Change


September 30,
2024


June 30,
2024


September 30,
2023


$


%


$


%


(Dollars in thousands)

Service charges and other fees

$         2,788


$         2,817


$         2,856


$       (29)


(1.0) %


$       (68)


(2.4) %

Card revenue

2,134


1,930


2,273


204


10.6


(139)


(6.1)

Loss on sale of investment securities

(6,945)


(1,921)


(1,940)


(5,024)


261.5


(5,005)


258.0

Gain on sale of loans, net

—


—


157


—


—


(157)


(100.0)

Interest rate swap fees

—


52


62


(52)


(100.0)


(62)


(100.0)

Bank owned life insurance income

860


931


734


(71)


(7.6)


126


17.2

Gain on sale of other assets, net

1,480


49


—


1,431


2,920.4


1,480


100.0

Other income

1,520


1,388


2,129


132


9.5


(609)


(28.6)

Total noninterest income

$         1,837


$         5,246


$         6,271


$  (3,409)


(65.0) %


$  (4,434)


(70.7) %

 

Noninterest Expense

Noninterest expense increased $0.2 million, or 0.5%, during the third quarter of 2024 from the second quarter of 2024. Data processing expense increased during the quarter due primarily to timing of expenses and annual rate increases; however, data processing expense continued to be lower than the same period in 2023. Professional services expense decreased compared to the prior quarter, primarily due to timing of services performed.

Noninterest expense decreased $1.7 million, or 4.1%, during the third quarter of 2024 compared to the same period in 2023. Compensation and employee benefits expense decreased due to a reduction in full-time equivalent employees to 749 at September 30, 2024 from 821 at September 30, 2023. Data processing expense decreased primarily due to a decline in ongoing costs resulting from prior technology-related contract renewals and terminations. Marketing expense decreased due to expense management efforts to reduce spending. Other expense decreased due to a decrease in customer account loss expense and a reduction in employee related expense.

The following table presents the key components of noninterest expense and the change for the periods indicated:

 

Quarter Ended


Quarter Over
Quarter Change


Prior Year
Quarter Change


September 30,
2024


June 30,
2024


September 30,
2023


$


%


$


%


(Dollars in thousands)

Compensation and employee
benefits

$            24,367


$            24,448


$            25,008


$     (81)


(0.3) %


$   (641)


(2.6) %

Occupancy and equipment

4,850


4,765


4,814


85


1.8


36


0.7

Data processing

3,915


3,535


4,116


380


10.7


(201)


(4.9)

Marketing

128


244


389


(116)


(47.5)


(261)


(67.1)

Professional services

490


795


582


(305)


(38.4)


(92)


(15.8)

State/municipal business and use
taxes

1,249


1,160


1,088


89


7.7


161


14.8

Federal deposit insurance premium

824


812


818


12


1.5


6


0.7

Amortization of intangible assets

399


421


595


(22)


(5.2)


(196)


(32.9)

Other expense

3,068


2,916


3,560


152


5.2


(492)


(13.8)

Total noninterest expense

$            39,290


$            39,096


$            40,970


$     194


0.5 %


$  (1,680)


(4.1) %

 

Income Tax Expense

Income tax expense decreased $193,000 during the third quarter of 2024 to $1.6 million compared to $1.8 million for the second quarter of 2024. The decrease in income tax expense during the current quarter compared to the prior quarter was primarily due to a decrease in pre-tax income during the third quarter of 2024.

Income tax expense decreased during the third quarter of 2024 compared to same period in 2023 due to lower pre-tax income during the third quarter of 2024. The effective tax rate declined due to lower pre-tax income which increased the impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and tax credits.

The following table presents the income tax expense and related metrics and the change for the periods indicated:

 

Quarter Ended


Change


September
30,
2024


June 30,
2024


September
30,
2023


Quarter Over
Quarter

Prior Year
Quarter


(Dollars in thousands)

Income before income taxes

$         13,066


$         15,995


$         21,797


$       (2,929)


$         (8,731)

Income tax expense

$           1,643


$           1,836


$           3,578


$          (193)


$         (1,935)

Effective income tax rate

12.6 %


11.5 %


16.4 %


1.1 %


(3.8) %

 

Dividends

On October 23, 2024, the Company's Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable on November 20, 2024 to shareholders of record as of the close of business on November 6, 2024.

Earnings Conference Call

The Company will hold a telephone conference call to discuss this earnings release on Thursday, October 24, 2024 at 10:00 a.m. Pacific time. To access the call, please dial (833) 470-1428 -- access code 493684 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through October 31, 2024 by dialing (866) 813-9403 -- access code 423520.

About Heritage Financial Corporation

Heritage Financial Corporation is an Olympia, Washington-based bank holding company with Heritage Bank, a full-service commercial bank, as its sole wholly-owned banking subsidiary. Heritage Bank has a branch network of 50 banking offices in Washington, Oregon and Idaho. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island, Washington. The Company's stock is traded on the Nasdaq Global Select Market under the symbol "HFWA." More information about Heritage Financial Corporation can be found on its website at www.hf-wa.com and more information about Heritage Bank can be found on its website at www.heritagebanknw.com.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would," and "could," as well as the negative of such words. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements include, but are not limited to, the following: potential adverse impacts to economic conditions nationally or in our local market areas, other markets where we have lending relationships, or other aspects of our business operations or financial markets including, without limitation, as a result of credit quality deterioration, pronounced and sustained reductions in real estate market values, employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth; changes in the interest rate environment which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the level and impact of inflation and the current and future monetary policies of the Board of Governors of the Federal Reserve System in response thereto; the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks; legislative or regulatory changes that adversely affect our business, including changes in banking, securities, and tax law, regulatory policies and principles, or the interpretation of regulatory capital or other rules, including as a result of the upcoming 2024 presidential election; credit and interest rate risks associated with our business, customers, borrowings, repayment, investment, and deposit practices; fluctuations in deposits and deposit concentrations; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; fluctuations in the value of our investment securities; credit risks and risks from concentrations (by type of geographic area and industry) within our loan portfolio; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions for our business, including as a result of sophisticated attacks using artificial intelligence and similar tools; rapid technological change in the financial services industry; increased competition in the financial services industry from non-banks such as credit unions and Fintech companies, including digital asset service providers; our ability to adapt successfully to technological changes to compete effectively in the marketplace, including as a result of competition from other commercial banks, mortgage banking firms, credit unions, securities brokerage firms, insurance companies, and financial technology companies; effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business and the businesses of our clients; our success at managing the risks involved in the foregoing items; and other factors described in our latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission (the "SEC") which are available on our website at www.heritagebanknw.com and on the SEC's website at www.sec.gov. We caution readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to us and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

 

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(Dollars in thousands, except shares)



September 30,
2024


June 30,
2024


December 31,
2023

Assets






Cash on hand and in banks

$             78,068


$             55,469


$             55,851

Interest earning deposits

97,504


58,288


169,122

Cash and cash equivalents

175,572


113,757


224,973

Investment securities available for sale, at fair value (amortized cost of
$909,023, $1,022,211 and $1,227,787, respectively)

852,779


931,248


1,134,353

Investment securities held to maturity, at amortized cost (fair value of
$661,696, $642,051 and $662,450, respectively)

719,400


727,342


739,442

Total investment securities

1,572,179


1,658,590


1,873,795

Loans receivable

4,679,479


4,532,615


4,335,627

Allowance for credit losses on loans

(51,391)


(51,219)


(47,999)

Loans receivable, net

4,628,088


4,481,396


4,287,628

Premises and equipment, net

72,500


73,218


74,899

Federal Home Loan Bank stock, at cost

16,993


22,303


4,186

Bank owned life insurance

127,248


126,420


125,655

Accrued interest receivable

20,102


19,855


19,518

Prepaid expenses and other assets

296,190


319,428


318,571

Other intangible assets, net

3,552


3,951


4,793

Goodwill

240,939


240,939


240,939

Total assets

$       7,153,363


$       7,059,857


$       7,174,957







Liabilities and Stockholders' Equity






Non-interest bearing deposits

$       1,682,219


$       1,599,367


$       1,715,847

Interest bearing deposits

4,026,273


3,916,285


3,884,025

Total deposits

5,708,492


5,515,652


5,599,872

Borrowings

382,000


500,000


500,000

Junior subordinated debentures

21,985


21,912


21,765

Accrued expenses and other liabilities

166,372


171,786


200,059

Total liabilities

6,278,849


6,209,350


6,321,696







Common stock

534,917


541,294


549,748

Retained earnings

383,127


379,714


375,989

Accumulated other comprehensive loss, net

(43,530)


(70,501)


(72,476)

Total stockholders' equity

874,514


850,507


853,261

Total liabilities and stockholders' equity

$       7,153,363


$       7,059,857


$       7,174,957







Shares outstanding

34,153,539


34,496,197


34,906,233

 

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except per share amounts)



Quarter Ended


Nine Months Ended


September 30,
2024


June 30,
2024


September 30,
2023


September 30,
2024


September 30,
2023

Interest Income










Interest and fees on loans

$          64,138


$          60,608


$          56,119


$        182,608


$        160,192

Taxable interest on investment securities

13,472


14,156


14,590


42,462


44,021

Nontaxable interest on investment securities

159


165


448


505


1,554

Interest on interest earning deposits

2,048


1,653


2,310


5,177


4,436

Total interest income

79,817


76,582


73,467


230,752


210,203

Interest Expense










Deposits

20,256


18,453


11,877


55,097


25,012

Junior subordinated debentures

541


539


540


1,627


1,521

Securities sold under agreement to
repurchase

—


—


38


—


148

Borrowings

6,062


6,477


5,394


18,427


12,238

Total interest expense

26,859


25,469


17,849


75,151


38,919

Net interest income

52,958


51,113


55,618


155,601


171,284

Provision for
(reversal of) credit losses

2,439


1,268


(878)


5,099


2,856

Net interest income after provision for (reversal of) credit losses

50,519


49,845


56,496


150,502


168,428

Noninterest Income










Service charges and other fees

2,788


2,817


2,856


8,393


8,162

Card revenue

2,134


1,930


2,273


5,903


6,396

Loss on sale of investment securities, net

(6,945)


(1,921)


(1,940)


(18,839)


(2,226)

Gain on sale of loans, net

—


—


157


26


307

Interest rate swap fees

—


52


62


52


230

Bank owned life insurance income

860


931


734


2,711


2,280

Gain on sale of other assets, net

1,480


49


—


1,529


2

Other income

1,520


1,388


2,129


4,408


6,659

Total noninterest income

1,837


5,246


6,271


4,183


21,810

Noninterest Expense










Compensation and employee benefits

24,367


24,448


25,008


74,291


75,325

Occupancy and equipment

4,850


4,765


4,814


14,547


14,372

Data processing

3,915


3,535


4,116


10,732


12,427

Marketing

128


244


389


583


1,232

Professional services

490


795


582


1,852


1,961

State/municipal business and use taxes

1,249


1,160


1,088


3,709


3,150

Federal deposit insurance premium

824


812


818


2,431


2,465

Amortization of intangible assets

399


421


595


1,241


1,841

Other expense

3,068


2,916


3,560


9,370


11,127

Total noninterest expense

39,290


39,096


40,970


118,756


123,900

Income before income taxes

13,066


15,995


21,797


35,929


66,338

Income tax expense

1,643


1,836


3,578


4,599


10,816

Net income

$          11,423


$          14,159


$          18,219


$          31,330


$          55,522











Basic earnings per share

$               0.33


$               0.41


$               0.52


$               0.91


$               1.58

Diluted earnings per share

$               0.33


$               0.41


$               0.51


$               0.90


$               1.57

Dividends declared per share

$               0.23


$               0.23


$               0.22


$               0.69


$               0.66

Average shares outstanding - basic

34,322,069


34,609,900


35,022,676


34,584,851


35,062,760

Average shares outstanding - diluted

34,658,674


34,919,395


35,115,165


35,002,375


35,305,456

 

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands)

Average Balances, Yields, and Rates Paid:



Nine Months Ended September 30,


2024


2023


Average

Balance


Interest

Earned/

Paid


Average
Yield/
Rate(1)


Average

Balance


Interest

Earned/

Paid


Average
Yield/
Rate(1)

Interest Earning Assets:












Loans receivable, net(2)(3)

$ 4,425,234


$  182,608


5.51 %


$ 4,129,429


$  160,192


5.19 %

Taxable securities

1,699,995


42,462


3.34


1,975,818


44,021


2.98

Nontaxable securities(3)

19,193


505


3.51


71,702


1,554


2.90

Interest earning deposits

126,970


5,177


5.45


114,753


4,436


5.17

Total interest earning assets

6,271,392


230,752


4.91 %


6,291,702


210,203


4.47 %

Noninterest earning assets

856,198






848,035





Total assets

$ 7,127,590






$ 7,139,737





Interest Bearing Liabilities:












Certificates of deposit

$    826,575


$ 26,852


4.34 %


$    442,301


$   8,292


2.51 %

Savings accounts

457,989


640


0.19


558,467


471


0.11

Interest bearing demand and money market accounts

2,643,478


27,605


1.39


2,791,695


16,249


0.78

Total interest bearing deposits

3,928,042


55,097


1.87


3,792,463


25,012


0.88

Junior subordinated debentures

21,874


1,627


9.94


21,576


1,521


9.43

Securities sold under agreement to repurchase

—


—


—


38,187


148


0.52

Borrowings

484,300


18,427


5.08


339,296


12,238


4.82

Total interest bearing liabilities

4,434,216


75,151


2.26 %


4,191,522


38,919


1.24 %

Noninterest demand deposits

1,657,867






1,942,134





Other noninterest bearing liabilities

186,081






186,469





Stockholders' equity

849,426






819,612





Total liabilities and stockholders' equity

$ 7,127,590






$ 7,139,737





Net interest income and spread



$  155,601


2.65 %




$  171,284


3.23 %

Net interest margin





3.31 %






3.64 %



(1)

Average balances are calculated using daily balances.

(2)

Average loans receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $2.7 million and $2.4 million for the nine months ended September 30, 2024 and 2023, respectively.

(3)

Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

 

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands)

Nonperforming Assets and Credit Quality Metrics:





Quarter Ended


Nine Months Ended


September 30,
2024


June 30,
2024


September 30,
2023


September 30,
2024


September 30,
2023

Allowance for Credit Losses on Loans:





Balance, beginning of period

$         51,219


$         49,736


$         46,408


$         47,999


$         42,986

Provision for credit losses on loans

2,705


1,470


(635)


5,879


3,066

Charge-offs:










Commercial business

(2,560)


(312)


(15)


(2,949)


(176)

Consumer

(85)


(238)


(123)


(446)


(420)

Total charge-offs

(2,645)


(550)


(138)


(3,395)


(596)

Recoveries:










Commercial business

72


518


1,253


807


1,342

Consumer

40


45


59


101


149

Total recoveries

112


563


1,312


908


1,491

Net recoveries (charge-offs)

(2,533)


13


1,174


(2,487)


895

Balance, end of period

$         51,391


$         51,219


$         46,947


$         51,391


$         46,947

Net charge-offs (recoveries) on loans
to average loans receivable, net
annualized

0.22 %


— %


(0.11) %


0.08 %


(0.03) %
































September 30,
2024


June 30,
2024


December 31,
2023

Nonperforming Assets:






Nonaccrual loans:






Commercial business

$            4,301


$            3,826


$            4,468

Total nonaccrual loans

4,301


3,826


4,468

Accruing loans past due 90 days or more

5,347


4,296


1,293

Total nonperforming loans

9,648


8,122


5,761

Other real estate owned

—


—


—

Nonperforming assets

$            9,648


$            8,122


$            5,761







ACL on loans to:






Loans receivable

1.10 %


1.13 %


1.11 %

Nonaccrual loans

1,194.86 %


1,338.71 %


1,074.28 %

Nonaccrual loans to loans receivable

0.09 %


0.08 %


0.10 %

Nonperforming loans to loans receivable

0.21 %


0.18 %


0.13 %

Nonperforming assets to total assets

0.13 %


0.12 %


0.08 %

 

HERITAGE FINANCIAL CORPORATION

QUARTERLY FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands, except per share amounts)



Quarter Ended


September 30,
2024


June 30,
2024


March 31,
2024


December 31,
2023


September 30,
2023

Earnings:










Net interest income

$         52,958


$         51,113


$         51,530


$         53,871


$         55,618

Provision for (reversal of) credit losses

2,439


1,268


1,392


1,424


(878)

Noninterest income (loss)

1,837


5,246


(2,900)


(3,147)


6,271

Noninterest expense

39,290


39,096


40,370


42,723


40,970

Net income

11,423


14,159


5,748


6,233


18,219

Pre-tax, pre-provision net income (1)

15,505


17,263


8,260


8,001


20,919

Basic earnings per share

$              0.33


$              0.41


$              0.17


$              0.18


$              0.52

Diluted earnings per share

$              0.33


$              0.41


$              0.16


$              0.18


$              0.51

Average Balances:










Loans receivable, net (2)

$    4,555,090


$    4,415,790


$    4,303,394


$    4,233,743


$    4,201,554

Total investment securities

1,622,011


1,704,607


1,832,011


1,861,587


1,992,303

Total interest earning assets

6,327,485


6,241,936


6,244,138


6,269,805


6,363,043

Total assets

7,182,921


7,106,791


7,092,452


7,140,876


7,212,732

Total interest bearing deposits

3,997,496


3,916,977


3,868,890


3,849,067


3,841,148

Total noninterest demand deposits

1,677,984


1,638,262


1,657,132


1,772,261


1,859,374

Stockholders' equity

857,799


843,438


846,947


813,383


821,494

Financial Ratios:










Return on average assets (3)

0.63 %


0.80 %


0.33 %


0.35 %


1.00 %

Pre-tax, pre-provision return on
average assets (1)(3)

0.86


0.98


0.47


0.44


1.15

Return on average common
equity (3)

5.30


6.75


2.73


3.04


8.80

Return on average tangible common equity (1)(3)

7.62


9.74


4.07


4.69


12.90

Adjusted return on average tangible
common equity (1)(3)

10.42


10.74


9.34


10.21


13.62

Efficiency ratio

71.7


69.4


83.0


84.2


66.2

Adjusted efficiency ratio (1)

65.2


67.1


68.9


70.4


64.8

Noninterest expense to average total assets (3)

2.18


2.21


2.29


2.37


2.25

Net interest spread (3)

2.63


2.62


2.70


2.84


2.95

Net interest margin (3)

3.33


3.29


3.32


3.41


3.47



(1)

Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" section for a reconciliation to the comparable GAAP financial measure.

(2)

Average loans receivable, net includes loans held for sale.

(3)

Annualized.

 

HERITAGE FINANCIAL CORPORATION

QUARTERLY FINANCIAL STATISTICS (Unaudited)

(Dollars in thousands, except per share amounts)



As of or for the Quarter Ended


September 30,
2024


June 30,
2024


March 31,
2024


December 31,
2023


September 30,
2023

Select Balance Sheet:










Total assets

$    7,153,363


$    7,059,857


$    7,091,283


$    7,174,957


$    7,150,588

Loans receivable, net

4,628,088


4,481,396


4,378,429


4,287,628


4,219,911

Total investment securities

1,572,179


1,658,590


1,730,516


1,873,795


1,894,392

Total deposits

5,708,492


5,515,652


5,532,327


5,599,872


5,635,187

Noninterest demand deposits

1,682,219


1,599,367


1,637,111


1,715,847


1,789,293

Stockholders' equity

874,514


850,507


847,580


853,261


813,546

Financial Measures:










Book value per share

$            25.61


$            24.66


$            24.43


$            24.44


$            23.31

Tangible book value per share (1)

18.45


17.56


17.36


17.40


16.25

Stockholders' equity to total assets

12.2 %


12.0 %


12.0 %


11.9 %


11.4 %

Tangible common equity to tangible
assets (1)

9.1


8.9


8.8


8.8


8.2

Loans to deposits ratio

82.0


82.2


80.0


77.4


75.7

Regulatory Capital Ratios:(2)










Common equity tier 1 capital ratio

12.3 %


12.6 %


12.6 %


12.9 %


12.9 %

Leverage ratio

9.9


10.1


10.0


10.0


9.9

Tier 1 capital ratio

12.7


13.0


13.0


13.3


13.3

Total capital ratio

13.6


13.9


13.9


14.1


14.1

Credit Quality Metrics:










ACL on loans to:










Loans receivable

1.10 %


1.13 %


1.12 %


1.11 %


1.10 %

Nonperforming loans

1,194.9


1,338.7


1,037.9


1,074.3


1,531.7

Nonaccrual loans to loans receivable

0.09


0.08


0.11


0.10


0.07

Nonperforming loans to loans
receivable

0.21


0.18


0.17


0.13


0.12

Nonperforming assets to total assets

0.13


0.12


0.10


0.08


0.07

Net charge-offs (recoveries) on loans
to average loans receivable, net(3)

0.22


0.00


0.00


0.06


(0.11)

Criticized Loans by Credit Quality Rating:

Special mention

$         99,078


$         93,694


$       102,232


$         79,977


$         72,152

Substandard

71,977


82,496


70,183


69,757


62,653

Other Metrics:










Number of banking offices

50


50


50


50


50

Deposits per branch

$       114,170


$       110,313


$       110,647


$       111,997


$       112,704

Average number of full-time equivalent
employees

749


748


765


803


821

Average assets per full-time
equivalent employee

9,590


9,501


9,271


8,893


8,785



(1)

See Non-GAAP Financial Measures section herein.

(2)

Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports.

(3)

Annualized.

 

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)

This earnings release contains certain financial measures not presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") in addition to financial measures presented in accordance with GAAP. The Company has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company's capital, performance and asset quality reflected in the current quarter and comparable period results and to facilitate comparison of its performance with the performance of its peers. These non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for financial measures presented in accordance with GAAP. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the non-GAAP financial measures used in this earnings release to the comparable GAAP financial measures are presented below.

The Company considers the tangible common equity to tangible assets ratio and tangible book value per share to be useful measurements of the adequacy of the Company's capital levels.

 

September 30,
2024


June 30,
2024


March 31,
2024


December 31,
2023


September 30,
2023

Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:

Total stockholders' equity (GAAP)

$       874,514


$       850,507


$       847,580


$       853,261


$       813,546

Exclude intangible assets

(244,491)


(244,890)


(245,311)


(245,732)


(246,325)

Tangible common equity (non-GAAP)

$       630,023


$       605,617


$       602,269


$       607,529


$       567,221











Total assets (GAAP)

$    7,153,363


$    7,059,857


$    7,091,283


$    7,174,957


$    7,150,588

Exclude intangible assets

(244,491)


(244,890)


(245,311)


(245,732)


(246,325)

Tangible assets (non-GAAP)

$    6,908,872


$    6,814,967


$    6,845,972


$    6,929,225


$    6,904,263











Stockholders' equity to total assets (GAAP)

12.2 %


12.0 %


12.0 %


11.9 %


11.4 %

Tangible common equity to tangible assets (non-GAAP)

9.1 %


8.9 %


8.8 %


8.8 %


8.2 %











Shares outstanding

34,153,539


34,496,197


34,689,843


34,906,233


34,901,076











Book value per share (GAAP)

$            25.61


$            24.66


$            24.43


$            24.44


$            23.31

Tangible book value per share (non-GAAP)

$            18.45


$            17.56


$            17.36


$            17.40


$            16.25

 

HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)

The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company's ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated. The Company believes that presenting an adjusted return on tangible common equity ratio, which excludes certain non-recurring items is useful in measuring performance of the Company's ongoing business operations by removing the volatility of these non-recurring items.

 

Quarter Ended


September 30,
2024


June 30,
2024


March 31,
2024


December 31,
2023


September 30,
2023

Return on Average Tangible Common Equity, annualized:

Net income (GAAP)

$         11,423


$         14,159


$           5,748


$           6,233


$         18,219

Add amortization of intangible
assets

399


421


421


593


595

Exclude tax effect of adjustment

(84)


(88)


(88)


(125)


(125)

Tangible net income (non-GAAP)

$         11,738


$         14,492


$           6,081


$           6,701


$         18,689











Tangible net income (non-GAAP)

$         11,738


$         14,492


$           6,081


$           6,701


$         18,689

Exclude loss on sale of
investment securities, net

6,945


1,921


9,973


10,005


1,940

Exclude gain on sale of branch
including related deposits, net

—


—


—


—


(610)

Exclude gain on sale of premises
and equipment

(1,480)


(49)


—


—


—

Exclude tax effect of adjustment

(1,148)


(393)


(2,094)


(2,101)


(279)

Adjusted tangible net income (non-
GAAP)

$         16,055


$         15,971


$         13,960


$         14,605


$         19,740











Average stockholders' equity (GAAP)

$       857,799


$       843,438


$       846,947


$       813,383


$       821,494

Exclude average intangible assets

(244,706)


(245,106)


(245,536)


(246,022)


(246,663)

Average tangible common
stockholders' equity (non-GAAP)

$       613,093


$       598,332


$       601,411


$       567,361


$       574,831











Return on average common equity,
annualized (GAAP)

5.30 %


6.75 %


2.73 %


3.04 %


8.80 %

Return on average tangible common
equity, annualized (non-GAAP)

7.62 %


9.74 %


4.07 %


4.69 %


12.90 %

Adjusted return on average tangible
common equity, annualized (non-
GAAP)

10.42 %


10.74 %


9.34 %


10.21 %


13.62 %

 

The Company believes that presenting pre-tax pre-provision income, which reflects its profitability before income taxes and provision for credit losses, and the pre-tax, pre-provision return on average assets are useful measurements in assessing its operating income and expenses by removing the volatility that may be associated with credit loss provisions.

 

Quarter Ended


September 30,
2024


June 30,
2024


March 31,
2024


December 31,
2023


September 30,
2023

Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized:

Net income (GAAP)

$         11,423


$         14,159


$            5,748


$            6,233


$         18,219

Add income tax expense

1,643


1,836


1,120


344


3,578

Add (subtract) provision for
(reversal of) credit losses

2,439


1,268


1,392


1,424


(878)

Pre-tax, pre-provision income (non-
GAAP)

$         15,505


$         17,263


$            8,260


$            8,001


$         20,919











Average total assets (GAAP)

$    7,182,921


$    7,106,791


$    7,092,452


$    7,140,876


$    7,212,732











Return on average assets, annualized
(GAAP)

0.63 %


0.80 %


0.33 %


0.35 %


1.00 %

Pre-tax, pre-provision return on
average assets (non-GAAP)

0.86 %


0.98 %


0.47 %


0.44 %


1.15 %

 

The Company believes that presenting an adjusted efficiency ratio, which excludes certain non-recurring items is useful in measuring operating income and expenses by removing the volatility of these non-recurring items.

 

Quarter Ended


September 30,
2024


June 30,
2024


March 31,
2024


December 31,
2023


September 30,
2023

Adjusted Efficiency Ratio :

Total noninterest expense (GAAP)

$         39,290


$         39,096


$         40,370


$         42,723


$         40,970

Net interest income (GAAP)

$         52,958


$         51,113


$         51,530


$         53,871


$         55,618











Total noninterest income (GAAP)

$            1,837


$            5,246


$          (2,900)


$          (3,147)


$            6,271

Exclude (gain) loss on sale of
investment securities, net

6,945


1,921


9,973


10,005


1,940

Exclude gain on sale of branch
including related deposits,
net

—


—


—


—


(610)

Exclude gain on sale of premises
and equipment

(1,480)


(49)


—


—


—

Adjusted total noninterest income
(non-GAAP)

$            7,302


$            7,118


$            7,073


$            6,858


$            7,601











Efficiency ratio (GAAP)

71.7 %


69.4 %


83.0 %


84.2 %


66.2 %

Adjusted efficiency ratio (non-GAAP)

65.2 %


67.1 %


68.9 %


70.4 %


64.8 %

 

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SOURCE Heritage Financial Corporation